New EIA Oversight On Fast Track

Tighter regulation of equity index annuities is on a fast track with plans to advance three new standards and add four states to the project, according to Jim Mumford, first deputy commissioner with the Iowa insurance department.

Carriers in Iowa and Minnesota represent 67% of the market, says Mumford, and with the four additional states, this would rise to 87%.

During the spring meeting of the National Association of Insurance Commissioners, both Iowa and Minnesota insurance regulators launched an effort to increase product oversight of EIAs, fixed annuities that allow an investor to potentially participate in stock market appreciation.

The product is under scrutiny from the National Association of Securities Dealers, Washington, for points including commissions charged to contract owners.

Mumford says part of the project will focus on new standards that have been developed by the Insurance Marketplace Standards Association, Bethesda, Md. Those standards, he continues, cover three areas: needs-based selling or the suitability of products; disclosure; and agent training. (See sidebar.)

The standards would provide regulators with an additional tool, supplementing market conduct examinations, he says.

Work on an early warning system in which IMSA would inform regulators if it detected a potential problem is still under way, Mumford says.

When regulators are deciding when to conduct market conduct examinations, compliance with IMSA standards, including the new EIA standards, could help a regulator triage which companies needed to be examined first, according to Mumford.

If a company was IMSA accredited, and these standards were put in place, then there could be more confidence that the company was selling EIAs properly. At the March NAIC meeting, it was decided to start calling the product fixed indexed annuities to avoid confusion among the public.